The effect of trade liberalisation on poverty and inequality in India

Banerjee and Duflo [2019] discuss an influential empirical work by Petia Topalova in India where she studied the effect on poverty headcount across some 400 districts after trade liberalisation in 1991, reducing tariffs across vast sectors including agriculture. She found that reduction in tariffs increases poverty in the short and medium terms in districts where their industries are more exposed to global trade. The results suggest that, unlike theoretical prediction, labour does not adjust automatically by moving to other industries or to other districts. Despite the positive prediction in international trade theory, workers across Indian districts did not obtain new employment in less exposed industries or districts.
Topalova's chapter is in Harrison [2005], and the invited commentary quickly recognised her critical contribution in demonstrating empirically how trade liberalisation unfolds in practice. She made use of the fact that the trade liberalisation was externally imposed by the IMF (including the package of Structural Adjustment Program) and that the industry structure across districts was derived from pre-liberalisation time.

Abhijit V. Banerjee and Esther Duflo [2019]. 'Good Economics for Hard Times'. Allen Lane.
Ann Harrison [ed] [2007]. 'Globalization and Poverty'. Chicago: NBER.
Petia Topalova [2007] in Harrison [2007]. "Trade liberalization, poverty, and inequality: Evidence from Indian districts." pp.291-332.